Winning at the Rollover Game: Entrepreneur Reginald Bowser's Startup Targets 401(k) Market

By Rick Smith, LocalTechWire

CHARLOTTE, N.C. (March 26, 2003) –- Reginald Bowser has seen both sides of the tech slide.

Funding at a startup where he was chief marketing officer was pulled. But Bowser, who was among the original management team at LendingTree as vice president of marketing and advertising, bounced back quickly – based in part on his own experience.

Knowing that job changing and transferring or rolling over 401(k) plans was a big "pain point," he created his own company to address it.

Today, two-year-old RolloverSystems is a rapidly growing firm with 11 employees and a marquee list of clients that pay a variety of fees to join the web-based Rollover network. Or they can license the software and private label it.

And there is plenty of business to be had, according to Bowser.

"Keep in mind people are changing jobs more frequently these days (every 3.5 years), and there are about 14 million people a year who are changing jobs and invested in a 401(k) plan," he says.

Local Tech Wire recently asked Bowser, who received a BS from George Mason University and an MBA from The Darden Graduate School of Business at the University of Virginia, to talk about how he came up with the idea for the venture, why 401(k) plan rollovers are such a headache for companies.

Please tell me why you decided to launch a venture on your own, and what experience you have that led to this area of focus.

My experience as an early team member and Vice President of Marketing at LendingTree really served as a catalyst in helping me realize how powerful the Internet could be as a tool for streamlining otherwise complex and time-consuming financial transactions.

After LendingTree, as chief marketing officer for HorizonGuide, a start-up funded by T. Rowe Price Associates, I became involved in the business of capturing Rollover IRA assets. However, that company was focused on an entirely different market segment, namely the pre-retiree age bracket.

In early 2001, the market began to slide and T. Rowe Price discontinued funding the venture. I identified a huge opportunity in helping job-changers make quick, easy and smart decisions as it relates to their hard-earned 401(k) savings, and I started RolloverSystems the next day.

How are you funded? How many employees?

Early funding for RolloverSystems came from my own investment. But we've truly built this company the "old fashioned" way. We have paying customers who continue to buy our products. We have kept our burn rate low, concentrated our efforts on building a technically strong product, and we've used revenue generated to fuel our growth and product development.

We currently have 11 employees. We hope to add more team members to augment our sales and technology efforts as soon as possible.

What is the "pain" in the market you are trying to address?

The pain is that rolling over 401(k) assets to an IRA is traditionally a difficult and cumbersome process that can take 6 to 8 weeks to complete – and if you want to do some comparison shopping for the IRA, you have to go to several different financial services providers to get information on their specific families of products. The process is such a pain that many workers don't bother and simply cash out their 401(k)s when they leave a job, thus incurring substantial taxes and penalties.

We streamline the rollover process. Employees will be able to access our software via their corporate intranet - or they can use our website at www.rollovermarket.com. Our software allows them to go to one place, fill out a simple form, receive multiple offers back from competing financial institutions, and complete the entire rollover process in as little as 20-25 minutes.

Why are 401(k) rollovers such a problem?

You've got a lot of parties involved. There's the financial institution that handles your 401(k) plan, the new financial institution you have chosen to handle your IRA, the former employer who requires you to complete the proper paperwork to release your assets, and often times there's a plan administrator who keeps track of your asset balance and asset allocation in your 401(k) plan. All of these parties have to communicate in order to complete a rollover. In most cases, it's up to the individual plan participant to wade through the paperwork, etc., and many become frustrated and either leave the assets with the former employer or, even worse, cash out their 401(k). Keep in mind people are changing jobs more frequently these days (every 3.5 years), and there are about 14 million people a year who are changing jobs and invested in a 401(k) plan.

Is this targeted primarily at individuals who want more control over their 401(k)s?

Yes, but more specifically, it's targeted at individuals who want an easier way to take control over their hard-earned retirement savings. Many Americans truly ARE interested in getting more control over their 401(k)s, since it has become the primary retirement savings vehicle in use today. While there are lots of horror stories about Enron's 401(k) debacle and the impact of the market slump, many Americans are "pulling an Enron" on themselves by cashing out their 401(k)s instead of rolling them over.

Why would firms and third parties choose to work with Rollover rather than help employees? Is a reason the fact that HR at many companies have been scaled back?

Until recently, due to liability concerns, corporations have been reluctant to provide advice and guidance to employees as it relates to investments in the company defined contribution plan, such as a 401(k). By providing incoming and departing employees access to our software, they accomplish two goals. First, they can provide the employee with a valuable tool that allows them to make smart, informed decisions about their retirement savings. Second, they can comply with a new federal law that should become effective within the next 18-24 months. The new law states that any company offering a 401(k) plan will have to provide a certain segment of their employees the ability to choose a rollover option upon separation from the company. Our goal is to be the software that resides within the corporate intranet that allows the company to comply with this new federal law.

Do financial services providers pay you to license the software? How does the revenue model work?

Financial institutions pay RolloverSystems an "Initiation Fee" to be part of the RolloverMarket Network because it represents a "supplemental demand channel" (a way to acquire new customers). The financial institution also pays us transactional fees for new customers they acquire through our channel. On another level, financial institutions can license our software and use it in a private-labeled capacity on their own websites. In this case, instead of receiving offers from competing financial institutions, customers would be matched with various financial products within a single institution's family of products.

You list several high-profile partners. Are they paying customers?

Yes. We're currently working with some of the best-known financial institutions in the country, including JPMorganChase, TD Waterhouse and Harrisdirect. They are paying customers, and we're adding more financial institutions all of the time.

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